CBO Admits Obama's Stimulus Cost More, Did Less And Hurt Economy In The Long Run

By Susan Duclos

Investors.com notices a few thing from the Congressional Budget Office's (CBO) latest quarterly report on the economic effects of the Obama stimulus aka American Recovery and Reinvestment Act (ARRA).

The CBO report explains why they revised the employment numbers downward, and specifies how the economy is hurt in the long run.

Recovery: After nearly all the stimulus money has been spent, the Congressional Budget Office now admits it cost more than advertised, did less to boost growth and will hurt the economy in the long run.

The CBO's 22 page PDF report can be found here.

Page 9 of the PDF shows the original cost estimate of the ARRA and how it has taken a 5 percent hike in how much it cost American Taxpayers:

When ARRA was being considered, the Congressional Budget Office (CBO) and the staff of the Joint Committee on Taxation estimated that it would increase budget deficits by $787 billion between fiscal years 2009 and 2019. CBO now estimates that the total impact over the 2009–2019 period will amount to about $825 billion.

Unemployment is 9 percent, U6 unemployment which is the figures when over 2 million unemployed who haven't sought work in the four weeks preceding the survey, is over 16 percent, according to the United States Department of Labor Bureau of Labor Statistics.

According to a recent FED report released in November, there is a 50-50 chance of the U.S. heading into a double dip recession. (Source- LA Times)

Back to the November 22, 2011 CBO report, page 9:

By CBO’s estimate, close to half of that impact occurred in fiscal year 2010, and nearly 90 percent of ARRA’s budgetary impact was realized by the end of September 2011.

Page 16 of the CBO report revises previous estimates on employment downward:

The current estimates of the impact of ARRA on output and employment differ from those CBO presented in August 2011 because CBO has adjusted its methodology and slightly revised its projections of the timing of changes in federal spending as a result of ARRA. All told, CBO’s estimate of the increase in employment attributable to ARRA for calendar year 2011 was revised downward from a range of 1.2 million to 3.7 million FTE jobs to a range of 0.6 million to 3.6 million FTE jobs.

Page 17 of the report explains how Obama's stimulus hurts economic growth in the long run:

ARRA’s long-run impact on the economy stems primarily from the resulting increase in government debt.14 To the extent that people hold their wealth in government securities rather than in a form that can be used to finance private investment, the increased debt tends to reduce the stock of productive private capital. In the long run, each dollar of additional debt crowds out about a third of a dollar’s worth of private domestic capital, CBO estimates. (The remainder of the rise in debt is offset by increases in private saving and inflows of foreign capital.) Because of uncertainty about the degree of crowding out, however, CBO’s range of estimates of ARRA’s long-run effects reflects the possibility that the extent of crowding out could be more or less than one-third of the added debt.

Over the long term, the output of the economy depends on the stock of productive capital, the supply of labor, and productivity. The less productive capital there is as a result of lower private investment, the smaller will be the nation’s output over the long run.

Reports like this explain clearly why Nancy Pelosi and Democratic politicians, including Barack Obama, have made a calculated decision to stop using the word "stimulus" as reported in The Hill and other news agencies back in September.

Democrats are now being careful to frame their job-creation agenda in language excluding references to any stimulus, even though their favored policies for ending the deepest recession since the Great Depression are largely the same.

Indeed, with President Obama scheduled Thursday to lay out his job-creation plans before a joint session of Congress, liberal Democrats and left-leaning policy groups are pressuring him to ignore short-term deficit spending concerns in favor of sweeping spending initiatives designed to boost hiring.

The Democrats’ signature “Make it in America” platform aims to create jobs by increasing infrastructure spending, providing financial help to struggling states and expanding tax credits for businesses, all of which were key elements of their 2009 economic stimulus bill.

Recognizing the unpopularity of the 2009 package, however, Democratic leaders have revised their message with less loaded language – “job creation” instead of “stimulus” and “Make it in America” in lieu of “Recovery Act” – in hopes of tackling the jobs crisis.

So, the next time you hear Obama or Democrats talk about "investing in America" aka spending more money we do not have, understand they want more of the same "stimulus" that failed to accomplish what their Keynesian ideology thought it would accomplish in 2009, 2010 and 2011.

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